$1,000 gold in a recession?

December 18th, 2007

In my last post, I noted that Jessica Cross, CEO of Virtual Metals, had forecasted $900 gold in 2008. Now, Citigroup (Citibank) sees the possibility of $1,000 gold if the US economy goes recessionary. If we do see a recession, Citigroup ranks gold as the best likely performer, followed by copper, aluminum and zinc, with steel being the worst.

Citigroup observed that “. . . gold is oscillating around $800/oz as speculators have locked in profits. We view the outlook favorable for a test of $1,000.”

The Citigroup analysts see precious metals “as well-positioned” because the Fed and other central banks have made it clear that re-inflation is the operative for the times. Concerns about subprime debt have created what the money men call a “liquidity crisis.” Central bankers always attack liquidity crises by printing more money, which adds to inflationary pressures and makes precious metals more attractive to investors.

Meanwhile, Citigroup analysts warn that “. . . the IMF is taking measures (e.g., job cuts) aimed at convincing the U.S. and Europe to allow 400 tons of gold sales.” If the IMF, which has made rumblings about selling gold for some time, is successful in getting the US to approve gold sales we can expect years of turmoil in the gold market.

However, new comers to the gold market need to know that the IMF and the US were big sellers of gold in the early 1970s when gold had not topped even $200 and silver traded below $2.00. Sales of gold by “official” agencies do not necessarily result in lower gold prices over the long run. However, the short run can be hectic.

What we have to keep in mind is that we are living in highly inflationary times, and that gold and silver have proven to be smart investments during inflationary times.

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